Last Updated on August 30, 2021 at 3:50 pm
A little too much is made of the importance of investing in PPF before the 5th of the month. How important is this? What if I fail to invest before 5th for a few months? Should I beat myself up about it?
Let us find out using the PPF tracker/calculator.
Assumptions:
Annual investment limit: Rs. 1,50,000
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Interest rate fixed for the entire tenure: 8.7%
Fixed Monthly Investment: Rs. 12,500 or
Fixed Annual Investment: Rs. 1,50,000
Investing each month
Final Maturity value if all the monthly investments are made before the 5th of the month: Rs. 45, 04, 384
Final Maturity value if all the monthly investments are made after the 5th of the month: Rs. 44, 73, 197
Difference: Rs. 31, 187
I hope you will agree with me that this difference of Rs. 31,18 7, to be realized after 15 years is trivial. The person who always invested before the 5th gained about 2.5 times the monthly investment compared to the person who always invested after the 5th.
It hardly matters when you pay the subscription.
Of course, if you choose not to invest the maximum Rs. 1.5 Lakh in PPF and had invested the money if equity, you will, after a few years of investing, gain or lose Rs. 30,000 (or more!) in a single day!
Of course, 44-45 Lakhs after 15 years is not a great achievement either, even if it is tax-free.
But then again, PPF fans are oblivious to such realities.
Investing once a year
There are those who believe that it is best to make PPF investments between April 1st -5th of each financial year. Let us find out how beneficial this is.
Maturity value if yearly investment of Rs. 1.5L is made before April 5th for 15 years: Rs. 46,75, 914
If monthly investments of Rs. 12,500 are made before the 5th of the month for 15 years, the maturity value (as seen above) is: Rs. 45, 04, 384
The difference is 1,71, 529 . This is indeed significant.
However, how many members of the PPF fan club can afford to shell out Rs. 1.5 Lakhs in one shot?
They can always delay the opening of the account by a year, until they have enough to make annual investments and then ensure they invest once a year before April 5th. How practical would that be (wrt to the financial goal), is something that each person will have to decide.
Also, the delay of a year should be taken into account if someone wants to compare ‘benefits’.
Now,
Maturity value if yearly investment of Rs. 1.5L is made after April 5th for 15 years: Rs. 46,44, 726
Again, the difference between ‘before 5th’ and ‘after 5th’ yearly investments is only Rs. 31, 187
Bottom Line (for PPF fans)
Forget about the ‘before 5th’ vs. ‘after 5th’ nonsense. Invest what you can, when you can.
Bottom Line (for investors)
There is more to investing than tax-saving and EEE instruments. Invest according to an asset allocation suitable for financial goals. PPF can certainly be part of a portfolio with investments in line with the asset allocation.
Let us not forget that securing 8-9% growth over 15 years could well result in a negative real return!
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)